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How do you reckon our political system functions? It could be similar to this. Citizens choose MPs. They legislate on bills. If a majority is obtained, the bills pass into law. Legislation are enforced by the courts. Simple as that. However, that used to be how it used to work. Those days are over.

The Rise of Secret Tribunals

Today, overseas companies, along with the oligarchs behind them, can sue governments for the laws they pass, at offshore tribunals composed of corporate lawyers. The cases are conducted away from public scrutiny. In contrast to domestic courts, these bodies provide no right of appeal or oversight by judges. You or I are barred from bringing a case to them, and neither can our government, or even companies based in this country. Access is granted solely for corporations based overseas.

Should an arbitration panel determines that a legislative action could harm the corporation’s expected profits, it can award compensation of hundreds of millions of pounds, potentially billions.

These sums constitute not actual losses but funds the panel members decide the company might otherwise have made. The state could be forced to drop the legislation. It will be hesitant to passing future laws along the same lines, for fear of facing litigation.

A Process Spiralling Out of Control

Record numbers of legal actions are being brought, as firms learn from each other, and investment funds bankroll lawsuits for a share of a share of the awards. The outcome? National sovereignty and democratic governance are becoming prohibitively expensive.

The process is called “investor-state dispute settlement” (ISDS). The rationale it is allowed to trump a country's own laws and the rulings enacted by parliaments is that this clause has been written – absent public approval, and often in a climate of total confidentiality – into international trade agreements.

A Real-World Example: The Cumbrian Coal Mine

A year ago, activists achieved a major legal triumph at the senior court. The judge found that proposals to dig the first major coal mine in the UK for a generation, in northwest England, were wrongly permitted by the Conservative government, which had accepted the bizarre claim that the mine could have no impact on our carbon budgets. The incoming administration then withdrew the permission the previous administration had issued. Now, this victory could be compromised by an foreign court answering to exclusively the corporations filing the suit.

In August, a company whose final controllers are located in the Cayman Islands initiated proceedings against the UK government. Recently a dispute settlement body in the US capital was established to adjudicate on it.

The company is seeking compensation from the UK for the profits it might have made if the mine had been permitted to go ahead. We have no clear indication how much this sum represents. Who is acting on its behalf in opposition to the state? A member of parliament, and previous senior legal advisor in the previous government, that great patriot the MP. The state enacts a policy, the domestic court upholds it, then a overseas corporation contests it through an undemocratic arbitration panel, and a member of our parliament works for its behalf.

The Russian Challenge

On the same day that the tribunal on the mining lawsuit was appointed, information emerged from a ministerial statement that the UK is subject to further litigation under ISDS by a Russian oligarch, a sanctioned individual. Details are scarce of the case so far, but it seems likely that he will utilise the arbitration process to challenge the restrictions the UK enacted against him after the war in Ukraine. He has initiated proceedings against Luxembourg on these grounds, seeking sixteen billion dollars: equivalent to half of nation's yearly budget. Part of the lawyers acting for him in that case? a prominent lawyer, spouse of the previous PM.

Legal experts argue that the EU’s procrastination in using frozen state funds as security for its financial support package is due to apprehension in Brussels that it could be taken to court in the ISDS tribunals, under a bilateral investment treaty. This extraordinary, secretive influence over elected governments might be preventing the finance Ukraine urgently requires.

Empty Promises and Mounting Costs

The public was told that these events could not occur. Years ago, a former prime minister, promoting the biggest and most dangerous of all these agreements, stated: “Britain has agreed to investment treaty upon trade deal and we have never seen a case in the past.” An adviser on this topic labelled activists of “alarmism … the truth is, ISDS has little impact on the UK much”. The general impression appeared to be that exclusively weaker states needed to fear ISDS claims. Predictions that “when companies begin to understand the power they’ve been granted, they will turn their attention from the vulnerable countries to the strong ones” were met with widespread derision.

That prediction has now materialised. In the current period, energy and extraction companies have filed a record number of claims against nations across the economic spectrum, challenging – as in the case of the Whitehaven project – official measures to prevent global warming. Firms have thus far won vast sums through ISDS, of which fossil fuel companies have been awarded eighty-four billion dollars. That represents the combined GDP